Committee reports on UK offshore oil and gas

30 June 2009

The Government needs to take steps to ensure that the UK’s remaining oil and gas resources are exploited to the greatest benefit and that the fiscal and regulatory regime in which the industry operates is effective.

In the report of its first full inquiry since it was established, the Energy and Climate Change Select Committee argues that to prioritise the security of UK energy supply whilst moving towards a low carbon economy the Government must do more to support the efficient recovery of UK oil and gas reserves.

Launching the report, acting chairman of the Committee, Paddy Tipping MP said:

"We all know that in the face of climate change we need to develop a range of sustainable alternative energy supplies for the future. However, on the way to that goal we must take steps to ensure we can make the most of our own oil and gas reserves.

"Oil and gas companies operating on the UK continental shelf currently face a quadruple whammy of high costs, low prices, lack of affordable credit and a global recession. We have learned that a lack of affordable lending and bleak investment prospects could wipe out 50,000 jobs and lead to a significant fall in production.

"If the Government does not respond to this problem by giving better fiscal and regulatory signals then we may never recover anything like as much of our domestic reserve as would be desirable. Ministers must engage with the banks - through BERR and HM Treasury – to ensure the sector can borrow what it needs to maintain capital expenditure, jobs, and production during the recession."

The Committee concludes that the new 'field allowance' and other measures announced in Budget 2009 won’t be enough to create the competitive environment or the commercial incentives required to provoke investment in both existing and in new fields sufficient to deliver the predicted extra two billion barrels of oil hoped for by the Chancellor. They call on ministers to review existing fiscal arrangements and set out the predicted effects of other options - such as capital uplift or a reduction in the supplementary charge - on both tax revenues and potential investment levels in the industry.

Looking to the area west of Shetland, the Committee tells ministers they must work with industry to agree a timescale for the establishment of the infrastructure required to exploit this resource and the rules governing its use.

The Committee also calls on the Government to instigate and fund a comprehensive survey of the marine environment and its wildlife west of Shetland - to evaluate the full potential effect of intensive oil and gas recovery activities in the area. Likewise, it calls on ministers and the oil industry to develop a systematic and ongoing plan for marine wildlife surveys across the UK continental shelf that will fill in the substantial gaps left by earlier surveys.

Looking to the future, the Committee welcomes the Government’s initiative in the area of carbon capture and storage, a technology that they believe may offer a major opportunity to use existing infrastructure and skills in the North Sea with beneficial outcomes.

UK oil and gas production peaked in 1999 and is now declining by around 5 per cent annually. Significant volumes are still being recovered and estimates for future production range however from 11 billion to 37 billion barrels of oil equivalent.

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